Maximizing Tax Benefits A Guide for Disabled Individuals and Their Families
There are significant tax benefits available to compensate for individuals with disabilities. This article breaks down the benefits into three categories: As they apply to an individual with disabilities, the parent with a disabled child or dependent, and a business that accommodates individuals with disabilities.
AS A PERSON WITH A DISABILITY
As a person with a disability, you may qualify for some of the following tax deductions, income exclusions, and credits when you file a federal tax return. Some states also provide disability-related tax benefits. More detailed information may be obtained by contacting this office.
Additional Standard Deduction: If you are legally blind, and aren’t itemizing your tax deductions, you may be entitled to a higher standard deduction on your tax return. This extra deduction applies to the taxpayer and/or their spouse (if also legally blind), but not to dependents. To qualify, a taxpayer must be blind or partially blind on the last day of the tax year. Partial blindness is defined as an individual not being able to see better than 20/200 in the better eye with glasses or contact lenses, or the individual's field of vision is not more than 20 degrees. For joint filers the extra standard deduction is $1,600 per eligible individual and for unmarried filers it is $2,000. These amounts are for 2025 and are inflation adjusted annually.
Gross Income: Certain disability-related payments may be excluded from gross income, and therefore aren’t taxed. Allowances paid by the Department of Veterans Affairs (VA) and Supplemental Security Income (SSI) are not included in gross income.
Impairment-Related Work Expenses: If you are self-employed and have a physical or mental disability that functionally limits your self-employment, you may be able to claim business expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to work. This deduction was also available as a miscellaneous itemized deduction for employees prior to the passage of the Tax Cut and Jobs Act (TCJA) which suspended it through 2025. Congress is currently debating tax provisions for years after 2025, so at the time this article was prepared, it is not known if these expenses will be deductible as an itemized deduction after 2025.
Credit for the Elderly or Disabled: You may be able to claim this credit if you are 65 or older or if you are under 65 and you retired on permanent and total disability and have received taxable disability income for the tax year. However, to qualify, your adjusted gross income or the total of nontaxable Social Security, pensions, annuities or disability income must be under specific limits.
You must be a U.S. citizen or resident alien. Nonresident aliens generally do not qualify unless they are married to a U.S. citizen or resident alien and choose to be treated as a resident alien. If married, you generally must file a joint return to claim the credit, unless you and your spouse lived apart for the entire year. The Credit for the Elderly or the Disabled is a nonrefundable credit. This means it can reduce your tax liability to zero, but it cannot result in a refund if the credit exceeds your total tax liability. The credit ranges between $3,750 and $7,500.
Medical Expenses: You may qualify for a medical deduction. Medical expenses can be deducted as an itemized deduction on your tax return, but they must exceed a certain percentage of your adjusted gross income (AGI) to be eligible. That percentage rate is 7.5% and applies at least through 2025. This means that only the portion of your medical expenses that exceeds 7.5% of your AGI can be deducted and provided your standard deduction isn’t greater than your overall itemized deductions.
Medical expenses include the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. Commonly encountered deductible medical expenses include payments for medical and dental insurance, hospital services, doctors, dentists, prescription glasses, prescription drugs, and insulin. Additionally, premiums for Medicare B and D, as well as supplemental Medicare insurance, can be deducted. For individuals with disabilities, expenses such as the cost of attending a special school designed to compensate for a physical handicap and wages for nursing services are also deductible.Home Modifications for Disabilities: Modifications made to a home to accommodate a disability can be considered deductible medical expenses if they meet certain criteria. The IRS allows the full cost of specific improvements to be included as medical expenses, provided these modifications do not increase the home's value. Such improvements may include constructing entrance or exit ramps, widening doorways, installing railings or support bars, and modifying kitchen cabinets or electrical fixtures. If the expenses are not claimed as itemized deductions, they can be added to the home's purchase cost to adjust the tax basis, potentially reducing capital gains when the home is sold.
Qualified Retirement Savings Contributions: A retirement savings contribution credit may be claimed for contributions you, as the designated beneficiary of an Achieving a Better Life Experience (ABLE) account, make. To qualify for an ABLE account an individual must be severely disabled before turning age 26 (46 beginning for years after 2025), based on marked and severe functional limitation or receipt of benefits under the SSI or Disability Insurance (DI) programs.
The retirement savings contribution credit, also known as the Saver's Credit, can be claimed by individuals described, who make eligible contributions to their ABLE account. This credit is nonrefundable, meaning it can reduce the amount of tax owed but cannot increase a tax refund. The maximum credit amount is up to $1,000 for individuals or $2,000 for those filing jointly. Additionally, the individual's adjusted gross income must not exceed specific thresholds based on their filing status which are different for the continental U.S., Alaska and Hawaii. An individual who is a full-time student or claimed as a dependent on someone else’s tax return does not qualify for the credit.Earned Income Tax Credit (EITC): EITC is a tax credit for certain people who work and have low to moderate earned income. The EITC for 2025 can be as much as $649 for a single individual with no children and who is at least 25 years of age but under age 65. It reduces the amount of tax owed, and any excess is refundable. Many working individuals with a disability that have no qualifying children and meet the age requirement qualify for EITC. Additionally, to qualify for the EITC, individuals must have earned income, which can include long-term disability benefits received before reaching the minimum retirement age, typically age 55. These benefits are considered earned income if they are attributable to the employer's payment of disability policy premiums. However, nontaxable disability income resulting from premiums paid by the employee does not count as earned income for EITC purposes. It's important to note that once an individual reaches the minimum retirement age, disability benefits are no longer considered earned income for EITC eligibility.
Many individuals may not file a tax return because their income is below the filing threshold, potentially missing out on the EITC. Additionally, there is a common misconception that receiving the EITC could affect eligibility for other benefits like Social Security disability benefits, Medicaid, or housing assistance, which is not the case.
AS A PARENT OF A CHILD WITH A DISABILITY
As a parent of a child with à disability you may qualify for some of the following tax exemptions, deductions and credits.
Dependents: You may be able to claim your child as a dependent regardless of age if they are permanently and totally disabled. Permanently and totally disabled:
The child cannot engage in any substantial gainful activity because of a physical or mental condition.
A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.
Dependent With a Disability Working at Sheltered Workshop: You may be able to claim a dependency exemption for a qualifying child or qualifying relative working and receiving income at a sheltered workshop. One of the tests to be a dependent limits a dependent’s gross income. That limit is $5,200 for 2025 and is inflation adjusted annually. The gross income does not include income from services the individual performs at a sheltered workshop; however, they must still meet the other dependency tests.
Adoption Credit: You may be able to claim an adoption credit and exclude employer-provided adoption benefits from your income if you adopt a child with special needs. The credit is $17,280 for 2025 and is inflation adjusted annually. In the case of an adoption of a child with special needs, the full credit limit will be allowed for the tax year in which the adoption becomes final, regardless of whether the taxpayer has qualified adoption expenses.
EITC For Parents of Children with Disabilities: EITC is a tax credit for certain people who work and have low to moderate earned income. The amount of the credit is dependent upon income and the number of qualifying children. For 2025 the maximum credit is: $4,328 with one child, $7,152 with two and $8,046 with three or more. The credit is inflation adjusted annually. You may qualify for this credit if your qualifying child is permanently and totally disabled, regardless of age, if you meet the other requirements. Normally to count a child for the EITC, the child must be under the age of 19 or be a full-time student under age 24 at the end of the tax year.
Child or Dependent Care Credit: Usually to claim the child or dependent care credit the child must be under the age of 13. However, you may be entitled to this credit if, so that you can be gainfully employed, you pay someone to come to your home and care for your dependent, regardless of their age, if they are unable to care for themselves. Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. The credit is a percentage of the care expenses ranging from 35% to 20% depending upon your adjusted gross income (AGI). The 20% rate applies to AGI above $43,000. The maximum amount of expenses that can be used for determining the credit is $3,000 for one dependent and $6,000 for two or more.
Medical Expenses: You can of course deduct the medical expenses, as described previously, of a disabled individual who qualifies as your dependent.
Home Modifications for Disabilities: You can include as medical expenses home modifications, as described previously, to accommodate a dependent.
Medical Conferences: You can include in medical expenses amounts paid for admission and transportation to a medical conference if the medical conference concerns the chronic illness of yourself, your spouse, or your dependent.
BUSINESSES ACCOMMODATING PERSONS WITH DISABILITIES
A business wishing to accommodate persons with disabilities, whether their employees or their customers, may qualify for some of the following tax credits and deductions:
Disabled Access Credit: This is a tax credit for an eligible small business that pays or incurs expenses to provide access to persons with disabilities. The expenses must be to enable the eligible small business to comply with the Americans with Disabilities Act of 1990.
Barrier Removal Tax Deduction: Businesses may be able to take a deduction of up to $15,000 for expenses related to removing physical, structural, and transportation barriers for people with disabilities that they paid during the tax year.
Work Opportunity Tax Credit: This credit provides employers with an incentive to hire persons from certain population groups having a particularly high unemployment rate or other special employment needs, such as Supplemental Security Income (SSI) recipients, Vocational Rehabilitation referrals and Veterans with disabilities.
Dealing with the various disability-related tax provision benefits can be complicated. Please contact this office for assistance.
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